TSLA Stock: Tesla Motors Inc Is Burning Cash

By George Leong, B.Comm. Published : October 8, 2016

Tesla Strategy is Questionable

Tesla Motors Inc (NASDAQ:TSLA) and its enigmatic leader Elon Musk are always in the news, whether it’s about landing on Mars, creating the world’s next super battery, or refining its amazing Tesla electric vehicles. TSLA stock is also one of the most volatile.

The view of Tesla stock is often deeply debated between those who think the company is set for much greater things, while others believe there are some execution concerns.

I’m stationed somewhere in the middle. Tesla Motors Inc has a market-leading electric vehicle that is currently the envy of the automakers. The Tesla “Model 2” is what automakers want to emulate. It’s beautiful and technologically ahead of its rivals. This is why I like TSLA stock.

But then there are the rising competitive forces. Bulls of Tesla stock will argue that the Model 2 and “Model 3” are light years ahead of the competition. That’s true for now, but I wouldn’t be counting out the proven technologies and abilities from the likes of Mercedes-Benz, Porsche, Audi AG, and Bayerische Motoren Werke AG (BMW) in the same class.

For example, Mercedes is progressing smoothly with its premium electric vehicle brand coined the “EQ.” The EQ SUV, with a driving range of over 300 miles per charge, is slated to debut sometime in 2019. While it’s still over two years away, other automakers are already here and Tesla Motors Inc will need to be ready to fend off the rivals.

Why Tesla Will Be Financially Challenged

Here’s my other side, based on the numbers person that I am.

Tesla Motors Inc is delivering excellent growth for its vehicles. The lower-cost Model 3 announced earlier in the year is attracting superlative demand. The problem for Tesla stock will be the execution and ability to deliver the vehicles in a costly and timely manner. At issue is the company’s weak balance sheet that will likely see several visits to the capital markets for additional cash.

But what really confuses me is that Tesla Motors Inc should be fully focused on its be vehicle delivery platform, especially with the Model 3 coming, rather than spending $2.8 billion on its proposed acquisition of beaten-down SolarCity Corp (NASDAQ:SCTY). While I get what Elon Musk is trying to do longer-term, I don’t think the timing is great, given the need for Tesla Inc to stop rapidly burning through cash.

Longer term, TSLA stock could be big winner for investors if everything pans out right for Musk in his vehicle and solar businesses, but nearer term, it will be a juggling act.

I have been bearish on Tesla stock since it ventured above $265.00 and even after falling to $217.00. TSLA stock is trading at around $201.00, but I wouldn’t be surprised to see another move down toward $180.00.

Given what’s on the plate, the financial situation is somewhat precarious at this time. Tesla Motors Inc has about $3.25 billion in cash, but this is offset by $3.66 billion in debt. The problem is that the company is quickly burning through cash, and the SolarCity deal will not help, given the need to effectively deliver the Model 3.

At the end of the day, Tesla Motors Inc will have to raise more capital. How many times will depend on whether the company can deliver the vehicles in a timely and cost-effective manner, along with its integration of SolarCity into something that actually works.